Who are Justice Department’s ‘outside experts’ on prosecuting banks?

By Alison Frankel

January 30, 2013

Lanny Breuer made the formal announcement Wednesday that he is stepping down as head of the Justice Department’s criminal division, after a week that he surely won’t remember as his favorite in public service. Last Tuesday, PBS’s Frontline made Breuer seem insincere and evasive about Justice’s failure to prosecute bankers involved in mortgage securitization. Then yesterday, a pair of U.S. senators, Chuck Grassley (R-Iowa) and Sherrod Brown (D-Ohio), sent a follow-up letter to Attorney General Eric Holder, demanding information about the Justice Department’s settlements with big banks. In particular, the letter quoted comments by both Holder and Breuer about receiving advice from “experts” on the dire economic consequences of indicting financial institutions. Brown and Grassley asked the Justice Department to disclose the identity (and compensation) of all outside experts who opined on prosecuting banks with more than $1 billion in assets and to explain how it vetted the experts to ensure that they “provided unconflicted and unbiased advice to DOJ.”

Based on a speech Breuer gave to the New York City Bar Association last September, some of the experts who spoke with the Justice Department about what would happen if global corporations faced criminal charges were certainly not unbiased: They were economists brought in by targets to dissuade the department from indicting their clients. Let’s be clear: Listening to arguments from potential defendants is an entirely appropriate exercise of prosecutorial discretion; as Breuer said in his speech, responsible law enforcement demands that prosecutors consider the consequences of their actions. But with Grassley and Brown now pressing the Justice Department on who advised Holder and Breuer to protect jobs and markets by deferring prosecution of big banks, Justice critics could try to turn Breuer’s words against him and his office.

The senators’ letter cites Breuer’s remarks to Frontline, which helpfully posted a transcript of its interview with the assistant AG. “In any given case, I think I and prosecutors around the country, being responsible, should speak to regulators, should speak to experts, because if I bring a case against institution A, and as a result of bringing that case there’s some huge economic effect, it affects the economy,” Breuer told Frontline. “At the Department of Justice, we’re being aggressive, but we should in fact take into consideration what the experts tell us. That doesn’t mean we won’t go forward, but it has to be a factor.”

Grassley and Brown also quoted Holder’s remarks from the Justice Department’s press conference announcing the resolution of interbank rate-rigging claims against UBS. “We reach out to experts outside of the Justice Department to talk about what are the consequences of actions that we might take, what would be the impact of those actions if we wanted to make a particular (prosecutorial) decision or determination with regard to a particular institution,” Holder said.

You can see why Grassley and Brown wanted to know more about these experts, but I suspect there’s less here than the Holder quote suggests. I asked two knowledgeable critics of the Justice Department’s handling of too-big-to-fail banks whether they’d previously heard anything about Justice relying on outside opinions to guide indictment decisions. Neil Barofsky, the New York University law professor who was inspector general of the Trouble Asset Relief Program until 2011, and Jeffrey Connaughton, the author and former chief of staff to former senator Ted Kaufman (D-Del.), both said they hadn’t, though both applauded Grassley and Brown for pressing for information.

Breuer himself told my Reuters colleague Aruna Viswanatha on Wednesday that he did not want to respond directly to the senators’ letter, but that when he has referred in the past to consulting experts, he meant “regulators in the United States and abroad whose entire job it is to figure out what the health of a particular regulated industry is.” Breuer told Viswanatha that he did not mean to suggest that the Justice Department has received advice from private consultants.

But even if Justice hasn’t hired such experts, it has heard from them, according to Breuer’s New York City bar speech. “We are frequently on the receiving end of presentations from defense counsel, CEOs and economists who argue that the collateral consequences of an indictment would be devastating, just devastating, for their client,” Breuer said. “In my conference room over these past years, I’ve heard sober predictions that a company or a bank might fail if we indict, that innocent employees could lose their jobs, that entire industries could be affected and that even global markets will feel the effects. Sometimes, though let me stress not always, these presentations are compelling.”

Breuer’s description of presentations by targets and their expert economists almost makes you hope the Justice Department was hearing counterarguments from experts not in the employ of potential defendants. Perhaps the department’s response to Grassley and Brown will turn out to offer that reassurance.

The Justice Department didn’t respond to my email requesting comment, but a representative told Reuters Tuesday that it had received the senators’ letter and was reviewing it.

The bit about innocent employees losing their jobs, in the case of an indictment, seems quite a stretch in view of the fact that wall street firms, and large financial institutions around the globe have already managed their bottom line by releasing employees. The one constant appears to be that those who perform, regardless the ethos, are kept and rewarded well.

Unfortunately the involvement of Grassley badly taints any of this: he has a well deserved reputation as a grandstanding, say-anything, politics-first goofball. His interest in this business here likely has no connection to merit — it’s mostly likely driven by the possibility of leveraging it into another grossly inflated attack on Obama and his people. And the thing is that the lack of aggressive prosecutions of these financial people, who basically created the worldwide recession that most countries are still trying to recover from, has been a very, very sore spot for an awful lot of people who see it as a blatant form of unequal justice.

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Alison Frankel updates On the Case multiple times throughout the day on WestlawNext Practitioner Insights. A founding editor of the Litigation Daily, she has covered big-ticket litigation for more than 20 years. Frankel’s work has appeared in The New York Times, Newsday, The American Lawyer and several other national publications. She is also the author of Double Eagle: The Epic Story of the World’s Most Valuable Coin.